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Rents rising across the UK as demand for larger homes fuels growth

Rents rising across the UK as demand for larger homes fuels growth

Rents on more significant properties are rising significantly faster than those on smaller homes, fuelled by a general desire for more living space, which has been a critical feature of the pandemic.

Consequently, the cost of trading up to gain an extra bedroom has substantially increased, according to the latest Hamptons Monthly Lettings Index.

In October, four-bedroom properties recorded the strongest rental growth. The average rent on a four-bedroom home in Great Britain rose to £1,949 per calendar month (PCM), up 10.6% on the same time last year and nearly triple the rate of growth of a one-bed which rose 3.7% year-on-year to stand at £875pcm.

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The gap between the monthly rent of a one- and two-bedroom home now stands at its widest point since Hamptons’ records began in 2013. Strong rental growth has meant that the average one-bedroom in Great Britain now costs the same amount as a two-bedroom did in 2016.

This has meant that the cost of trading up from a one-bedroom to a two-bedroom rental property has doubled over the last three years.

Last month it cost £144 or 16% more to rent a two-bed home, more than double the gap (£68 or 8%) in October 2018. This equates to an extra £1,728 each year.

The cost of moving from a two-bedroom to a three-bedroom has also risen. Last month a tenant would have had to pay an extra £142 or 14% each month to trade up from a two to three-bed home, £30 more than in October 2020. This will cost the average tenant an extra £1,705 each year. The average two-bed home now costs the same amount to rent each month as a three-bed did in 2018.

London is the costliest region in the country to trade up, both in absolute and percentage terms.

Last month the average two-bed in the capital cost £567 or 42% more each month than a one-bed. The North East is the cheapest region to swap a one-bed for a two-bed (+£102 or +20%).

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Compared to last year, the cost of trading up has risen the most in the East Midlands. It costs 12% or £63 more each month to trade a one-bed for a two-bed home than in October 2020. This is because rents on one-bed properties in the region have fallen by 0.2% year on year, while two-bed rents have risen by 9.7%.

London is the only region where it’s cheaper to trade up than it was last year. This is because rents on one-bed properties in the capital have risen faster than two-beds. Much of the demand for one-bed homes in London has been driven by younger tenants and pied-à-Terre hunters returning to the capital, which has bolstered rents.

Nationally rental growth remained resilient in October, with rents rising 7.9% over the last 12 months, the fourth largest annual increase since the lettings index began in 2013. Outside the capital, rents continued to grow in double digits for the fifth month running, with average rents up 11.0% on the same time last year. Moreover, with 47% fewer homes available to rent than at the same time in 2020, rental growth is set to remain buoyant into 2022.

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Rents rose faster in the South West than anywhere else in the country, up 15.3% annually. October marked the third straight month that rents grew more quickly in the southwest (15.3%) than in any other region. It was also the fifth month in a row that all three southern areas outside London (the South East, South West and East of England) recorded double-digit growth.

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Meanwhile, annual rental growth in Inner London is poised to turn positive following 21 consecutive months of falls. Rents in Inner London fell 0.1% in October, the smallest drop recorded since the onset of the pandemic. Despite this, rents here remain 20% below where they stood on the eve of the pandemic, up from a trough of 30% earlier in the year. In cash terms, this 20% fall means the average property in Inner London cost £530 less than it did during the peak.

Aneisha Beveridge, head of Research at Hamptons: “With rents on larger homes currently rising at twice the rate of smaller properties, it is now more costly for tenants to trade up than ever before.

“The desire for space has been the property trend of the pandemic. While smaller city properties have fallen out of fashion, larger family homes have been in high demand. But with rents on larger homes currently rising at twice the rate of smaller properties, it is now more costly for tenants to trade up than ever before.

“The pandemic has marked the first time that we’ve seen such a significant divergence in rental growth by property size. Usually, rental growth remains pretty uniform no matter how large the home is, but the gap between rental growth on smaller and larger properties has widened to around 5% over the last year. But as more tenants make their return to city centres, many seeking smaller properties, it’s likely that the gap will begin to shrink in the new year.

“There are few signs that rental growth is slowing as the year ends meaning that if growth continues at current rates, we are likely to see rents outside the capital hit £1,000 per month by the middle of next year. At the same time, rents in London are starting to recover their pre-pandemic momentum which will serve to bump up the headline rental growth figure nationally.”

SOURCE: Property Industry Eye / November 22, 2021 / Marc Da Silva

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